Colodny Fass& Webb Analysis: Insurance-Related Florida Supreme Court Decisions (July 3, 2013)

 

 

Above:  Colodny Fass& Webb Shareholder Maria Abate and Partner Amy Koltnow

 

The Florida Supreme Court released several decisions on July 3, 2013 that affect insurers.  Colodny Fass& Webb has analyzed the decisions below. 

To go directly to a particular topic, click on one of the following hyperlinks:

• Permissive Fee Schedule Not Automatically Incorporated in PIP Coverage
• Is it Clear When Courts May Consider Extrinsic Evidence to Resolve Ambiguities that Arise in Insurance Contracts?
• Overhead and Profit: To Pay or Not To Pay

 

Permissive Fee Schedule Not Automatically Incorporated in PIP Coverage

In the closely watched decision of Geico Gen. Ins. Co. v. Virtual Imaging Services, Inc., 2013 WL 3332385 (Fla. July 3, 2013), the Florida Supreme Court upheld the prior decision of Third District Court of Appeal that an insurer could not limit reimbursements for Personal Injury Protection (“PIP”) medical benefits to the statutory fee schedule set forth in Section 627.736(5) Florida Statutes (2008) without providing notice through an election in its policy.

The question, which had been certified by the Third District for review by the Supreme Court, was as follows:

WITH RESPECT TO PIP POLICIES ISSUED AFTER JANUARY 1, 2008, MAY THE INSURER COMPUTE PROVIDER REIMBURSEMENTS BASED ON THE FEE SCHEDULES IDENTIFIED IN SECTION 627.736(5)(a), FLORIDA STATUTES, EVEN IF THE POLICY DOES NOT CONTAIN A PROVISION SPECIFICALLY ELECTING THOSE SCHEDULES RATHER THAN “REASONABLE MEDICAL EXPENSES” COVERAGE BASED ON SECTION 627.736(1) (a)?

Virtual II, 90 So.3d at 324.

Significantly, the Supreme Court rephrased the certified question “because the specific legal issue in this case is not whether an insurer can compute reimbursements based on the Medicare fee schedules ‘rather than provide reasonable medical expenses’ coverage . . . but whether the insurer can use the Medicare fee schedules as a method for calculating the ‘reasonable medical expenses’ coverage the insurer is required by section 627.736 to provide, when the policy does not provide notice of the insurer’s election to use the fee schedules.”

The rephrasing of the question allowed the court to conclude “. . . that notice to the insured, through an election in the policy, is necessary because the PIP statute, section 627.736, requires the insurer to pay for “reasonable expenses . . . for medically necessary . . . services,” § 627.736(1)(a), Fla. Stat., but merely permits the insurer to use the Medicare fee schedules as a basis for limiting reimbursements, see § 627.736(5)(a) 2., Fla. Stat.  In other words, the PIP statute provides that the Medicare fee schedules are one possible method of calculating reimbursements to satisfy the PIP statute’s reasonable medical expenses coverage mandate, but does not provide that they are the only method of doing so.

Thus, the court reasoned that in order to limit payments to the fee schedule, without opportunity of dispute, the policy must provide notice that the insurer intends to do so.  Due to last year’s amendments to the PIP laws, the court’s holding applies “only to policies that were in effect from the effective date of the 2008 amendments to the PIP statute that first provided for the Medicare fee schedule methodology, which was January 1, 2008, through the effective date of the 2012 amendment, which was July 1, 2012.”

Importantly, the court emphasized it was not holding that limiting a payment to the fee schedule could never satisfy the “reasonable medical expenses coverage mandate” of the PIP statute; implying, therefore, that a carrier could utilize the fee schedule as a payment of reasonable medical expenses even if the fee schedule was not in the policy.  However, a payment under the fee schedule pursuant to a policy that does not incorporate the fee schedule would be subject to dispute.  Under these circumstances, the question of whether a particular payment pursuant to the fee schedule is “reasonable” would be subject to the usual resolution of such disputes through litigation.

The opinion does not become final until disposition of any timely filed motion for rehearing.  Click here for a link to the court’s opinion.

 

Is it Clear When Courts May Consider Extrinsic Evidence to Resolve Ambiguities that Arise in Insurance Contracts?

In Washington National Insurance Corp. v. Ruderman, (July 3, 2013), the Florida Supreme Court answered certified questions from the Eleventh Circuit and expressly clarifies the law regarding when an insurance policy is considered ambiguous and how it must be construed.  The Court seemingly chastises the Eleventh Circuit for not recognizing the well-established Florida law that a policy is deemed ambiguous if the language is susceptible to more than one reasonable interpretation, one providing coverage and the other limiting coverage and, if so, the policy should be construed against the insurer.  The Court held that this tenet remains the overriding consideration and courts are not required to first consider extrinsic evidence to clarify the potential ambiguity before construing the policy against the insurer. 

In this case, the insurer introduced evidence of the marketing of the policy and the understanding of the insureds when the policy was purchased and during the life of the policy.  The Florida Supreme Court reiterated that the special rules of construction of insurance contracts require courts to interpret the policy in accordance with the plain language.  Further, courts should consider the policy as a whole and endeavor to give every provision its full meaning and operative effect and, if an ambiguity remains, the policy must be construed liberally in favor of coverage and strictly against the insurer.  Florida courts, therefore, should not look to “extrinsic evidence” to resolve the ambiguity before construing the policy in favor of coverage.

Despite the Court’s admonition to the Eleventh Circuit for forgetting the “long-established rules of construction of insurance contract.”  Three justices disagreed, stating in their dissent that the “well-settled” Florida law allows the parties to introduce extrinsic evidence to resolve the ambiguity “before applying the last-resort principle of construction against the drafter.”   The dissent agreed that Florida precedent holds that a policy is deemed ambiguous if the language is susceptible to more than one reasonable interpretation–one providing coverage and the other limiting coverage.  However, it also cites to the long-standing Florida law that permits courts to consider extrinsic evidence to resolve the ambiguity.

In his sharply worded dissent, Justice Polston argued that Florida law has always allowed the courts to resort to the “ordinary rules of construction,” including extrinsic evidence, as well as evidence of the parties’ intent, before utilizing the construction-against-the-drafter-principle.  Justice Polston claims the majority opinion “misses the mark” by stating that extrinsic evidence should not be considered to determine if an ambiguity exists, since that was not the question posed by the Eleventh Circuit.  Rather, the question was whether once a policy is found to be ambiguous, may the court consider extrinsic evidence when construing the policy before applying the last-resort rule of construction against the drafter?

Notably, the majority opinion does not address any of the arguments made in the dissent.  Nor does the majority directly address whether trial courts may ever consider extrinsic evidence when construing a policy.  While the Florida Supreme Court seeks to clarify the well-settled law of policy construction, the dissenting opinion illustrates that confusion remains as to when the trial courts may look to extrinsic evidence to construe ambiguous terms in an insurance contract.  The opinion does not become final until disposition of any timely filed motion for rehearing.  Click here for a link to the court’s opinion.

 

Overhead and Profit:  To Pay or Not To Pay

The Florida Supreme Court held in Trinidad v. Florida Peninsula Insurance Company that the costs for a general contractor’s overhead and profit are a recoverable item under a replacement cost homeowners insurance policy, even if the homeowner does not repair, or contract to repair the damage to his home.  

The court’s opinion was based on the policy language and section 627.7011(3), Florida Statutes (2008), which required the insurer to pay “replacement costs without reservation or holdback of any depreciation in value, whether or not the insured replaces or repairs the dwelling.”  The court concluded that overhead and profit are considered replacement costs when the insured is reasonably likely to need a general contractor for the repairs.  Therefore, the insurer was required to pay those costs irrespective of whether those costs were actually incurred. 

The court held, “[b]ecause section 627.7011, Florida Statutes (2008), and the replacement cost policy in this case, did not require the insured to actually repair the property as a condition precedent to the insurer’s obligation to make payment, the insurer was not authorized to withhold, pending actual repair, its payment for replacement costs, which is measured by what it would cost the insured to repair or replace the damaged structure on the same premises if the insured were to do so.”  

Notably, section 627.7011 has since been amended to provide that the insurer must pay “at least the actual cash value of the insured loss, less any applicable deductible,” except in the case of a “total loss of a dwelling,” in which case “the insurer shall pay the replacement cost coverage without reservation or holdback of any depreciation in value.” § 627.7011(3)(a), Fla. Stat. (2012).  Therefore, in the absence of a total loss the insurer is no longer required (as it was under the terms of the 2008 version of the statute) to pay replacement costs without a holdback of any depreciation in value.  Thus, the court implicitly acknowledged that its decision may not apply in every circumstance and an insurer may provide otherwise in its policy. 

The Florida Supreme Court ordered the case to be sent back to the trial court to determine whether the insured is reasonably likely to need a general contractor for the repairs that encompass his covered loss.  The opinion does not become final until disposition of any timely filed motion for rehearing.  Click here for a link to the court’s opinion.

 

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Colodny Fass& Webb’s Insurance Law and Litigation Division, led by Shareholder Maria Elena Abate, handles complex and high-risk litigation such as class actions, bad faith, insurance fraud, multi-jurisdictional cases, coverage matters, and fact-intensive, multi-party lawsuits. 

The Firm’s litigators effectively represent clients in state, federal and administrative trials and appellate courts, and routinely represent insurance carriers, third-party administrators, and self-insured entities in all aspects of insurance coverage and defense.

 

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